The Housing Bubble

What a nice day to rank on REagents at a few open houses…

maybe they will have some good food

Good Morning everyone! Hope you all have a nice and peaceful Sunday!

Economic View NYT
Why Home Prices May Keep Falling
By ROBERT J. SHILLER
Published: June 6, 2009

Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.

But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.

There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan’s major cities fell every single year for 15 consecutive years.

Why does this happen? One could easily believe that people are a little slower to sell their homes than, say, their stocks. But years slower?

Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people who are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really leaving the market.

Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don’t have a speculator’s sense of urgency. And they don’t like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.

Among couples sharing a house, for example, any decision to sell and switch to a rental requires the assent of both partners. Even growing children, who may resent being shifted to another school district and placed in a rental apartment, are likely to have some veto power.

Yellen Says Fed Must Brace for ‘Substantial Shocks’…

June 5 (Bloomberg) — Federal Reserve Bank of San Francisco President Janet Yellen said that policy makers need to be prepared for “substantial shocks” and that rising Treasury yields may be a “disconcerting” signal of inflation fears.

“Recent experience raises the possibility that the Great Moderation is behind us, so we must be prepared for substantial shocks,” Yellen said today during a panel discussion hosted by the Fed Board of Governors in Washington. “Great Moderation” is a term used to describe the comparative economic stability seen in the U.S. and other major industrial countries, except Japan, since the mid-1980s.

Yellen’s comments on yields go beyond remarks made two days ago by Fed Chairman Ben S. Bernanke, who said in congressional testimony that the increases may reflect rising optimism about the economy and concerns about large federal deficits. Policy makers next meet June 23-24 in Washington and may consider whether to increase their planned purchases of $1.45 trillion of housing-related debt and $300 billion of long-term Treasuries.

Responding to audience questions, Yellen said that if she “had to write down a number” for the ideal long-term inflation goal, it would be 2 percent. That number is the preference of most Fed policy makers, she said, adding she would like to see more formal evaluation and research on the issue. She said she previously favored a 1.5 percent inflation rate.

“It’s a subject in which I have an open mind,” Yellen said.

Treasuries Tumbled

Treasuries tumbled today, driving two-year yields to an eight-month high, as traders began speculating the U.S. central bank will raise interest rates later this year.

What if inflation fails and the CPI falls into negative territory? Will this mean a cut in, say, Social Security payments? Why not? If the payments are adjusted upward according to the CPI, why not a downward adjustment as well when the CPI falls?

Decline in incomes is becoming commonplace. Real pay cuts — when wages fail to keep pace with inflation — are commonplace in recessions, but you would have to look back to the 1930s for the last example of widespread cuts in nominal wages in the United States. There’s an oversupply of labor. The unemployment rate — including people working part time because they can’t find permanent positions — has climbed to 16.4 percent. With so many workers waiting in the wings, wages nationwide may start to fall over the next couple of years.

“If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.”… yes, the cycles would be shorter were it not for government intervention, which prevents markets from efficiently working out their imbalances… housing has been the most inefficient market on the planet for years and years because of government policy… too much money for governments not to stick their hands into it..

I need your thoughts.

Inventory of homes for sale in quite a few areas of LA are over half of what they were just 2-3 months ago. Listing prices have started to noticably increase. Every time I go to see a foreclosure listing it already has multiple offers and inventory keeps shrinking.

1. The state of california has a 141 day moritorium on forclosures.
2. There is an $8,000 tax credit for new buyers.
3. Many lenders have self emposed moritoriums on their own forclosures.
4. The Fed. is buying treasuries to keep interest rates artificually low.
5. Banks are not putting their forclosures on the market, from what I read it is called the “shadow” inventory.

Because of all of this manipulation we are starting to get a new housing shortage in this middle class area of LA county. Listing prices are noticably starting to rise. Realitors are starting to get cocky again.

The thing is if one jumps in and buys, what happens when or if these subsidies are gone? How long will the Fed be able to suppress interest rates? Will their be an $8,000 tax credit next year? Have the banks been bailed out so completly that they can take for ever to get their shadow inventory on the market?

Folk with all the current manipulation listed above, plus the normal subsidy of FHA, VA, and the antics of Freddie and Fanny I am starting to wonder if there truely ever was a free market in realistate, and if we are starting the whole bubble all over.
Your thoughts please.

That $8,000.00 tax credit can be turned into cash at closing! Yay, it’s a great time to buy!

http://www.latimes.com/classified/realestate/news/la-fi-harney7-2009jun07,0,7341387.story

I attended an auction yesterday in south central KY. Brick 2400 sq ft house on 5 acres. Good side of town, good schools, 3 bd, 2 bath, 2 car garage and a smaller (700 sq ft) separate cabin (could be used as a rental). Auctions are pretty common in this neck of the woods to sell property. Divorce sale. Final knock down was 186k + 7% = $199. Interesting thing was last year ( about 14 months ago) they auctioned the same property and it brought $250k + 7% = $268. Sellers refused to sell, because they thought it should have brought $300k. That is is 25% reduction year over year. Nice thing about auctions is they tell you where the market is currently at.
PS - at the height of the market here, maybe about 2005/2006 the vacant five acre lots on either side of this house sold for just over $100 k.

X-GSFixer, any words of wisdom about Air France 447? I’m pretty down and out about this.

“Jones said his project, which will target graduate students or young university professors, will fill a void in the Gainesville market.”

http://www.gainesville.com/article/20090607/ARTICLES/906071008/1002?Title=Development-deja-vu

So said the developers of other projects that sit at 60-80% vacancy now or worse, several have failed and sit half-completed. The overbuilding here is continuing as the University of Florida continues to shrink. The RE rats are scrambling around trying to find that last morsel of cheese. It will be a good 10 years before the housing demand catches up with supply in this town.

I haven’t poste in a long time. Bakersfield, Ca has indeed experienced 40-50% price declines in real estate. But as my wife and I look for homes, most homes in the neighborhoods we’re interested, are pending/sold. It is discouraging because so many people are buying. We tried new construction, but they are still delusional. I wish the gov. would stop artificially proping up home prices through tax credits-let the free market correct. We feel that these people buying new construction now will default down the road. Moreover, their will be a wave of foreclosures in the coming months. We have to wait until Aug 22 to qualify for the 8K in first time buyers tax credit. Supposedly, this credit will end in Nov. What are your opinions with the Bakersfield market?

Hey Homebuyers, Beware A False Bottom Before You Make That Bid

http://www.businessinsider.com/hey-homebuyers-beware-a-false-bottom-before-you-make-that-bid-2009-6

SD Union Tribune
Dean Calbreath
Sale of fairgrounds? Don’t bet on it
2:00 a.m. June 7, 2009

It was during the Great Depression in 1936 that the federal government issued a half-million-dollar grant to finance construction of San Diego County’s fairgrounds in Del Mar.
…
It’s a sign of how desperate things have become in California that Gov. Arnold Schwarzenegger is now talking about selling off the fairgrounds – as well as such landmarks as the San Quentin prison, the Los Angeles Memorial Coliseum, the Cow Palace near San Francisco and the Cal Expo fairgrounds in Sacramento – in order to shore up the state’s faltering finances.

Short sales stymied by complications, delays
By Emmet Pierce
Union-Tribune Staff Writer

2:00 a.m. June 7, 2009
A home on Cottonwood Avenue in Santee was trashed by vandals while it sat vacant for months, awaiting lender approval for a short sale. (Laura Embry / Union-Tribune) -

With an estimated 20 percent of U.S. mortgage holders owing more on their loans than their homes are worth, short sales often represent the best chance for distressed borrowers to avoid foreclosure.

The problem is that many real estate professionals say it’s growing increasingly difficult to complete transactions in which lenders allow sellers to accept less for the home than the outstanding debt. Many pending short sales fall through as buyers grow tired of waiting for loan servicers to complete a lengthy approval process.

“There is an awful lot of paperwork and moving parts,” said Rick Sharga, vice president of the RealtyTrac real estate research firm. “The loan servicers are overwhelmed. There is a huge, huge bottleneck. It’s not at all uncommon to hear a Realtor talk about making an offer on a short-sale home and not hearing back for three months.”

Acknowledging that more needs to be done, Bank of America last week announced plans to “re-engineer” the way it processes short-sale requests. The move represents a major shift in strategy for one of the world’s largest financial institutions.
…
Aware of the short-sale bottleneck, the Obama administration is attempting to address the problem through a large infusion of cash. While details of how the plan will be implemented remain unclear, the idea is to give both lenders and distressed borrowers financial incentives to make more short sales happen.

Lesson learned from the resolution of the crisis du juor: It still pays off handsomely to be too-big-to-fail. And it is all too easy to get summarily screwed if you are not.

I am pretty sure that with a slight bit of editorial revision, the following story could describe the bailouts of too-big-to-fail banks on Wall Street whose managers threw hundreds of billions of dollars into the mortgage market black hole, with the exclusion of prudentially-managed smaller banks which don’t qualify.

Automaker bailout is big blow for small businesses
By Carly Fiorina
2:00 a.m. June 7, 2009

No concentration of power. No clout when the ax must fall. This is apparently the way of Washington, but it comes as a sad surprise to car dealers and their employees in cities and towns across Calfironia and America – cities and towns like San Diego, Ventura and Des Moines.

Recently, 187,000 jobs and some 1,900 small businesses in hundreds of communities across the country were eliminated by Chrysler and General Motors, two companies that have been bailed out by taxpayers to the tune of nearly $50 billion since December, and are now being overseen by President Barack Obama’s auto industry task force. With the latest bailout, the American taxpayers now own 60 percent of the “new” GM.

The 187,000 individuals who will lose their jobs far outnumber their unionized fellow Americans who work directly for GM and Chrysler, yet with a quick explanation on the expedience of this move and an overnight delivery of letters carrying the bad news, these jobs are gone.

No bailouts are in the offing for the dealerships, no concessions negotiated, no seat at the table of company ownership – just FedEx and UPS deliveries with the bad news. Though the dealers had no hand in the misguided strategies that bring America’s auto industry to the brink of collapse, they are left holding the envelope. And, it is the lack of concentration of power that makes this much too easy. This is not the way our country is supposed to operate.

Ahnold has definitely riveted everyone’s attention by threatening to shut down many of the crown jewels in the California state park system.

Community Essay | San Diego
What would Ellen Browning Scripps say?
By Peter Jensen
2:00 a.m. June 7, 2009

Online: Make your opinions on the Torrey Pines State Reserve known at savestateparks.org/.

It has been 110 years since the park lands known today as Torrey Pines State Natural Reserve have been without supervision and stewardship. Now our governor is proposing budget cuts that will close the reserve and the adjacent state beach, despite their popularity and the enormous amount of revenue generated each year from fees paid by those who enter via automobile.

We will return to a 19th-century era of no rangers, and no maintenance.

Closure, in fact, equals abandonment – the very thing that San Diegans, led most notably by the great philanthropist Ellen Browning Scripps, worked so hard to remedy long ago. Until the city of San Diego, and soon thereafter Miss Scripps, stepped in, a destructive faction of picnickers and campers threatened the natural treasure, hacking at many of the trees and building fires with the sappy wood of one of the world’s rarest pines.

Combo, double check all your passwords and accounts. Some crazy guy hijacked your handle last night, talking about trading and things like that.

I think he was smoking green shoots or something.

This house is over 600 days on the market and a very good example of chansing the market down. If only they have cut deeply 600 days ago they have been sold and be done with it, and with a nice profit. But greed not always paid off..

http://www.redfin.com/CA/Temecula/27439-Rosebay-Ct-92591/home/6172988

Mortgage relief scams mushroom as crisis winds on

By EILEEN AJ CONNELLY

The Associated Press

Sunday, June 07, 2009

NEW YORK — The letter may look like a government form. The logo may seem official. The Web site address may sound like an agency that can help.

But there’s a good chance it may all be a scam.

5 tips for spotting mortgage relief scams

Companies promising help with mortgage modification and foreclosure relief are proliferating throughout the country as the housing crisis continues. But many of these firms are really fraudulent operations aimed at scamming people who are already in distress.

Here’s some tips on how to spot a potential scam, from the National Endowment for Financial Education:

1. Be suspicious of unsolicited mail.
Watch out for letters that look like government forms or bear logos that resemble government seals. Search for misspelled words, language that includes dire warnings and references to government programs you can’t access without their help.

2. Carefully inspect Web sites before submitting information.
Some companies have been accused by law enforcement of setting up sites that mimic official government sites, which end with “.gov.” Some scams try to confuse consumers by using addresses that include a dash or slash in front of “gov” or end in .us, or by using names that sound like legitimate programs.

Also check out the sections labeled “Who we are” or “About us” that describe the company, and read its privacy policy. If these don’t exist, it’s not likely a trustworthy company.

3. Search for other red flags.
Sites that contain only a page where you fill out personal information and submit it for a referral should be considered suspect. Also be skeptical about the use of magazine, newspaper and TV logos, which could just mean the company paid for advertising with those outlets. And question promises to do things like put a “team of attorneys” on your case.

4. Walk away.
From any attempt to collect fees, and promises for a “free consultation” or a “money back guarantee,” which advocates say is a tip-off there’s going to be a fee. Nonprofit organizations work with government agencies to provide free help for distressed homeowners.

5. Check for complaints.
Against the company with your state consumer affairs or attorney general’s office, and with the Better Business Bureau.

The ongoing mortgage foreclosure crisis has sparked a cottage industry of so-called “foreclosure rescue” companies. But advocates and government officials warn that a significant number are little more than fraudulent operations designed to separate distressed homeowners from their money, and sometimes their houses as well.

“They prey upon the financially unsophisticated,” said Gail Cunningham of the National Foundation for Credit Counseling. “Anyone can easily fall victim to such scams. When you’re hurting, we may all become financially unsophisticated.”

Many of these companies have popped up as the mortgage meltdown accelerated, said Gary Almond of the Better Business Bureau in Los Angeles, one of the areas hardest hit by the housing crisis. “As the degradation in the market progressed, more (companies) got on the bandwagon,” he said.

Because of the role the mortgage industry plays in the nation’s economy and the types of crimes mortgage fraud represents, these companies have even drawn scrutiny from the FBI. The feds currently have nearly 2,350 mortgage fraud cases, up almost 400 percent from five years ago.

“With people losing homes, you’re at your most vulnerable,” said Roscoe Howard, a Treasury Department spokesman. “It’s a lot like being a poor swimmer and being thrown into a lake, you’re going to reach for whatever you can.”

Gov. Arnold Schwarzenegger says he’s “happy” illegal immigrants get state services and says they’re not to blame for California’s $24.3 billion budget gap.

Schwarzenegger, an immigrant himself, says the estimated $4 billion to $5 billion the state spends on illegal immigrants annually is a “small percentage” of the deficit.

The Republican governor told The Sacramento Bee’s editorial board on Friday that it’s easy to “scapegoat” illegal immigrants. But he says the state’s budget has a much deeper spending imbalance.

People thought it was neat to have the Terminator as governor. How does it feel now? Gray Davis was 10 times better than Arnold. What a stupid state.

Thanks for posting this, Prof. Bear

I just sent our esteemed Governator and my reps a piece of my mind.

1. While in Bishop past week talked to a local who told me that there was an $800K house in the neighborhood that went into foreclosure and that the neighbors wanted to band together and buy it so they could keep the property values up.

2. Two people on the trail ride had lost their jobs but went because the trip was already paid for. Both had recent reacquired a job on a part-time basis with a lower salary.

3. Most people in Bishop believe that prices will not go down.

4. Talked to someone down by SLO who told me of two people buying in Napomo and then renting out their houses until prices go back to the peak 2007 levels.

5. Went to Botti concert last night. One gentleman told me that SLO was looking bad as they have no water stored. Another said that central valley is also glum as no water.

This is one of the more depressing Bits threads I’ve seen in a while…

Ok, very off-topic I know but this really struck my cynical funny bone.*

Onion video - “New BabySafe Ball Makes Shaking Your Infant Guilt and Injury Free”

http://www.theonion.com/content/video/new_babysafe_ball_makes_shaking?utm_source=EMTF_Onion

Make sure you read the on-screen comments as the video plays. And the “segment” supposedly following this one is housing related.

(*Please note that poster does not endorse child abuse of any form. Please do not shake your baby, put cigarettes out on them, or stuff them into a fireplace no matter how insane they drive you!)

Combo, yesterday there was an imposter, using your handle, making outrageous claims like, “I am trading.” Please make sure you are not a victim of identity theft!

From today’s Chicago Tribune (link to follow)

There are open houses, and then there are “lifestyle events.”

The Chicago area is literally awash in million-dollar homes. In late May, a search of multiple-listing-service data within the northwest suburban area where the agents’ listing is located turned up more than 100 homes on the market priced at $1 million and up. Fanning farther out into the suburbs where the agents might hope to recruit a moneyed buyer, the MLS showed nearly 200 of them for sale in the Barrington area. And on the North Shore, gulp, there were nearly 1,200.

So the two Coldwell Banker agents, Maria DelBocchio and Michelle DePinto realized they faced a marketing challenge when they recently took over the listing for a $1.75 million home in Arlington Heights. The 4,200-square-foot, brand-new home at 924 S. Beverly Lane already had sat on the market for 15 months, with just three showings to potential buyers.

They thought of a social event to generate some buzz. In this bracket, agents long have been known to arrange cocktail parties for potential buyers or to host luncheons for other agents who might bring them a buyer, but those two tactics seemed so been-there, done-that.

So, they started thinking about just whom they knew — who would know the “right people” for a big-ticket property — and decided to put together a one-day open house that will be a little out of the ordinary.

They recruited an antiques dealer who will truck in vintage furnishings to fill the place up.

Then, one thing led to another: A local wine merchant is going to conduct wine tastings. A caterer will offer hors d’oeuvres. Local musicians will perform. A luxury car dealer is going to park a Bentley, a Lamborghini and a one-of-a-kind BMW in the garage. They even recruited Mayor Arlene Mulder to extol the virtues of Arlington Heights.

The businesses, in turn, worked with the agents to produce a list of 2,000 invitees whom they perceive to have the wherewithal to buy a $1.75 million home.

So, from noon to 4 p.m. June 28, the by-invitation-only crowd will sip wine and gaze upon the granite countertops, etc. and presumably drum up the requisite emotion that might help them to picture themselves owning the place.

But then — in what certainly amounts to a departure from most other high-end marketing events — the agents will open the doors to the community at large from 4 to 6 p.m. One thing is for sure: This part of the event — a come-one, come-all invitation — definitely will get the house noticed.

“We think it will bring in a buyer,” DePinto said. “It may not be somebody at the party, but someone who knows someone.”

To Attract Moneyed Buyers, Agents Think Big

http://www (dot) chicagotribune (dot) com/classified/realestate/chi-0607-umberger-columnjun07,0,612032.column

That is the link to the Chicago article.

Its been a year or so since I checked, but when I did, the median house price in Arlington Heights (the town where they are trying to sell the house mentioned in the article) was 8x median salary.

“I’d think it would be great to close the park for a couple years to save money and limit human interaction.”

Closing down the park would not limit human interaction without stricter policing. It would be better from a cost-benefits standpoint to charge a high enough use fee to obtain conservation benefits and still facilitate access for those who place a high enough value on the opportunity.

#4 US_citizen_in_Calgary on 06.05.09 at 11:52 pm Garth:

That post is very reasonable. There are reasons why Arizona is not so great.

1)Water or lack of it. It is dangerously hot there.
2)Dangerous wildlife: Snakes and not so nice neighbours there.
3)Health insurance isnt free there.

Other than that, this paints a very accurate picture of how overpriced houses are in Canada.

What most Canadians dont realize is that the US is not friendly. Here is a recent comment from “The Greater Fool” blogsite in Canada…

“Canada for the most part is a very friendly place, compared to the USA. I grew up there and I always find it funny that Canadians describe it as some paradise. The USA is a country owned by foreigners and it is not a free place anymore. It is state controlled. My wife a Canadian by birth doesnt feel as antagonistic to the US as I do and most Canadians dont because they dont see the US from an insiders point of view.

Anyone buying property, especially in Arizona should be aware of a dangerous biosphere there in addition to the wild west that still exists there. Guns? Yes. Gangs? Yes. Danger? Yes. Domesticated Canadians would do well to stay away. You dont know what you are dealing with.”

Just for grins, I took another look at the market for used San Diego homes listed at $1m+, by going on the San Diego Real Estate site on the SD Union-Tribune web site (sdhomesearch dot signonsandiego dot com). Unfortunately if there are over 600 homes listed in any price range, you cannot get an exact count, so please excuse all the censored categories.

Here is what I found:

Price range (millions) / No of listings
$1-$1.25 600+
$1.25-$1.5 600+
$1.5-$1.75 600+
$1.75-$2 555
$2-$2.25 239
$2.25-$2.5 315
$2.5-$2.75 201
$2.75-$3 273
$3-$3.25 115
$3.25-$3.5 183
$3.5-$3.75 112
$3.75-$4 134
$4-$4.25 56
$4.25-$4.5 81
$4.5-$4.75 51
$4.75-$5 71
$5+ 377

Conclusion (drumrolls, please):

The total number of San Diego homes currently listed at $1m or more is over 3*600+555+239+315+201+273+115+183+112+134+56+81+51+71+377 = 4,563.

$1m+ San Diego homes for everyone!!!

I know it’s been forever since I posted here, but I thought I would share my story on the new frugality and jumping into the housing market.

Anyway, here is my (long winded) story.

My Divorce was final just a few days ago after 9 months since filing. I look forward to recovering and being a healthy person again.

My career is doing good, since I left Texas for the PNW, and my income has never been better (>200). In fact, I could *almost* afford to get divorced, it’s been that good.

Before the divorce, we used to own a 4500+ sq ft custom home in Rockwall, Tx next to the big lake. We sold it at a 10% loss a year ago (from our 2003 purchase price, not counting the 6-figures we put into it after purchase), after nearly a year of trying to get it ready to sell (Couldn’t make any progress getting it ready until the wife and kids moved out and in with her mom, as I was working in Austin by then). I priced and slashed the price aggressively, and we closed the sale 61 days after listing despite half a dozen houses for sale visible from the front lawn. I brought a check to the closing and was happy to do so.

At one point while we were living there, we had four (4) BMW 5-series in the driveway, all of them paid cash for. We had cash in the brokerage, a good income and life was good. Well, not really. I couldn’t control her consumption, and gave up on controlling mine at moments out of resignation. Our second child was living hell his first few years, costing me years of sleep and indirectly my job. We were, despite having no debt other than a 4.75% 15-year mortgage, and a few hundred thousand in declining assets, overextended and didn’t fully realize it.

It took the destruction of my marriage, and the turmoil of losing a couple jobs to fully gain the ‘less is more’ religion.

Last fall, I was living in an apartment in Austin, while my soon-to-be-ex was living with the kids at her mother’s home. We were down to one 10-year old 5-series, having sold off the others along the way to raise cash (and my left ankle blew up, rendering me unable to drive a manual again). And I got laid off, by a company that is now in bankruptcy.

We hit fiscal bottom last fall, albeit not as badly as some do. I was laid off, but after 2 months, I had 5 job offers outside the state to choose from, and took the best (and most secure) one and plodded along with the divorce on semi-hold while we were busy with all the other stuff. I borrowed from my IRA to bridge the gap until my signing bonus arrived, which it did.

I got to work looking at how to keep life simple. And simple for the rest of my life. First was the car situation.

After 6 BMWs, and their frequent appetite for luxury priced maintenance (we did keep them a long time typically), the goal became to find the cheapest car option with the best reliability and an expectation of keeping the car 10+ years.

So, I arranged for the soon-to-be-ex to buy a new 2009 Honda CR-V, with her name on the loan, despite her not being back to work yet. Knowing her mechanical inclination (none) and future situation, I bought the 8-year/120k extended factory warranty for less than $1k, a reflection of Honda views the maintenance likelihood on it. There would be no more spending $10 grand at the dealer in a single month for maintenance (actually happened Feb 2005, across 3 cars).

I took the 10-year old 5-series wagon with me, as there was some good life left in it, and found myself driving it only about 400 miles a month. As long as its cheap to keep, I’m keeping it hopefully until alimony completes in 2011. Then, once it gives up the ghost, it’s going to be an inexpensive Japanese (or Korean) for me. I regularly park next to some very expensive cars where I work, and don’t give a hoot.

In short, after decades of driving ‘luxury’ and enjoy the status, all I care about now is the long term expense in dollars and the hassle of maintenance.

Now, for the housing situation.

My ex-wife wasn’t going to live with her mother forever, and my kids needed rooms of their own. I drilled into her that either she needed to rent (which she balked at), or find something she can afford on her salary once she’s qualified to be a teacher in Texas.

She found a school she wanted to send the kids too way out in the county, east of DFW. And just down the road from it she found a house for sale. So I structured the divorce decree so should would be able to qualify for a mortgage for it on her own.

Almost 2 heavily wooded acres, with a 1200 sq-foot, totally non-assuming house on it. Smaller, simpler, and older than the “starter home” in the suburbs we had 15 years ago. It also has a decent sized workshop out back, and a pad with utilities for a trailer. Owners wanted $120k, talked them down to $100k. Outside of any city. Minimal taxes. Half a mile from the school. House heavily shaded and low utility costs.

The mortgage was bought down to 4.25%, and if her mom comes through, the down payment will be 20% eliminating PMI, and reducing her total PITI payment to about $540 a month. When the car is paid off, she could apply the payment to her mortgage and have it paid off in 10-years or less, without having to try and drag more money out of me.

So the goal is met. My kids and her will be safe and secure in a place costing less than almost anything safe they could rent.

Me? I’m living in a small apartment, and despite my good income, have no plans to buy for a long time. I live frugal, and don’t go out (apparently this comes with being divorced), and look to have all of the debt (took it all in the divorce), wiped out in a year. I’m throwing out and selling off all the stuff I’ve accumulated over the years. No more storage units. If something new comes in the place, something else has to leave to make room. And from here on out, it’s all about building reserves and living way below my means. And it’s about time and people, not things.

Ok, so what’s the point of my story?

Eh.. it’s just an opportunity to vent on the one hand. On the other hand, I can’t be alone. There have to be a lot of other people like me who have gone through their own transformation, and are looking at the future and asking “How can I spend as little as possible? How can I put myself in a position where I won’t be so vulnerable ever again?” (besides not getting married, duh)

And for every person like me, there’s going to be BMW salesman who doesn’t make his numbers. A mechanic who doesn’t fill all his hours. A city councilman who wonders why tax revenue is down. A furniture salesman who wonders why business is slow. And on and on. Once I was a happy consumer, convinced I could keep the good times rolling. And now I’m voting with my feet, and my pocketbook that less is more, and it’s not a passing fad.

Interested to see what the ForeclosureTown listing situation is for the San Francisco Bay Area? Here are results from 35 mile radius searches for representative zip codes in various Bay Area counties formerly known as wealthy:

County / Zip Code / Listings
San Francisco 94134 8,106
Alameda (Berkeley) 94702 10,833
Contra Costa (Danville) 94506 10,882
Marin (Stinson Beach) 94970 3,397
Napa (Saint Helena) 94574 2,101
San Mateo (Palo Alto) 94303 9,857
Santa Clara (San Jose) 94306 9,423
Solano (Fairfield) 94534 3,285
Sonoma (Petaluma) 94952 2,465

Total = 8,106+10,833+10,882+3,397+2,101+9,857+9,423+3,285+2,465 = 60,349.

I will allow that the 35-mile radius searches might result in some overlaps, but nonetheless it looks like the number of ForeclosureTown listings for the greater SF Bay Area may far eclipse the number for San Diego.

Dilbert is a hoot today as well.
But it got me thinking. Maybe the time for daily Sunday comics is past. Yes, readers are aghast when the strips are switched, and I know from experience that editors put as much thought into their comic selection as other content choices. I’m serious. They do.
But comics require four-color printing, all that newsprint, maybe a Goss setup… and generate next to zero in revenue. And it’s hard to imagine that a loss of comics would accelerate a readership decline which is already pronounced. End of an era, I would say.
Now, if Calvin and Hobbes were still in the Sunday mix, I might argue otherwise. Everybody should be transmogrified once in a while.

Perhaps it will not be necessary to hand over billions of dollars to hedge funds who snapped up toxic mortgage assets in hopes of cashing in for bailout premiums?

Doubts mount over US toxic asset plan
By Krishna Guha and Edward Luce in Washington and Saskia Scholtes in New York
Published: June 7 2009 22:24 | Last updated: June 7 2009 22:24

The controversial US toxic asset clean-up plan, aimed at clearing bad loans from US banks’ books to enable them to raise capital and lend freely, has fallen behind schedule, and may never be fully implemented.

The plan has fallen prey to concerns from potential investors and regulators and waning interest from the banks themselves. Investors fear that Congress may set caps on pay while regulators are beginning to doubt whether the plan is really necessary.

Last week, the Federal Deposit Insurance Corporation, which was supposed to provide finance for investors to purchase bubble-era bank loans, postponed plans for a pilot sale, saying it was less urgent than had been thought.

“The timing just is not right,” an FDIC official told the Financial Times. He said the FDIC still wanted to test a mechanism for loan auctions but might hold it in reserve rather than activating it for general use.

Officials say the need for these facilities has waned, and add that several banks have raised billions of dollars in share capital even with toxic assets on their books.

“Banks have been able to raise capital without having to sell bad assets through the LLP [limited liability partnership], which reflects renewed investor confidence in our banking system,” Sheila Bair, chairman of the FDIC, said last week.

The good news: The green shoots theory is leading many to believe the recession is ending.

The bad news: The higher l-t T-bond rates that result are likely to translate into higher mortgage rates before household incomes recover from the labor market impact of the recession, worsening the housing price crash.

Treasuries Decline on Speculation U.S. Economy Is Recovering
By Wes Goodman

June 8 (Bloomberg) — Treasuries fell for a third day on speculation a government report this week on retail sales will add to signs the U.S. economic recession is ending.

Ten-year yields approached the highest level in seven months as the Treasury Department prepared to sell $65 billion in notes and bonds this week, raising concern rates will have to increase to attract investors. Government securities have fallen 6.2 percent so far this year, heading for their first annual loss in a decade according to Merrill Lynch & Co.’s U.S. Treasury Master index, as employment and manufacturing improve.

“The economy is bottoming out,” said Hideo Shimomura, who oversees $4 billion in non-yen bonds as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank. “Investors should protect their portfolios” against further losses, he said.

The yield on the 10-year note rose four basis points to 3.87 percent as of 11:32 a.m. in Tokyo, according to BGCantor Market Data. The price of the 3.125 percent security maturing in May 2019 fell 10/32, or $3.13 per $1,000 face amount, to 93 29/32. A basis point is 0.01 percentage point.

Yields on the 2019 notes climbed to 3.90 percent on June 5, the most since Nov. 4, rising from a record low of 2.04 percent on Dec. 18. The yield on the two-year note rose four basis points to 1.33 percent today.

Another long drive through the desert on interstate 8 Boarder patrol with AR15 rifles crossing the highway and it looks like the CA highway Patrol has declared war on its drivers many many stops all over San Diego to the AZ boarder. Crazy Times

I got half my cactus collection pass the AG inspectors and into San Diego so I’m happy about that. Highway patrol all over the CA side of the boarder as I have mentioned. Another run this next weekend its like passing through a war zone in a ominous kind of way. pretty drug sniffing dogs which they have them jump in tubs of water to cool off at the low desert check points. I would like a dog like that when I get my house some day over the rainbow as prices still silly high. and is everyone in N san Diego county over 65 ? I thought Phoenix was supposed to be old.

My little sis just e-mailed her thanks for my financial advice, which she claims enabled her to earn $11K over a few months of stock market speculation (I am not sure which of my myriad ‘tinfoil hat’ prognostications to which she credits her investing success ). She just cashed in her green shoots chips, and is planning to wait for the next ‘mini-crash’ to reload her bets. With rising bond yields afoot, I am guessing another crash is baked in the cake within a few months.

Treasuries and Stocks, in a Role Reversal
By JEFF SOMMER
Published: June 6, 2009

THE Treasury market has been wobbly, but the stock market has rallied — along with commodities, junk bonds and a wide range of other relatively risky asset classes in the United States and abroad.

“In many ways, what we’re seeing is a mirror image of 2008,” said Mary J. Miller, the director of the fixed-income division at T. Rowe Price. Treasuries soared in value last year when investors went on a wild “flight to quality,” driving down the prices of nearly everything else. That “fear trade” has abated as the financial system has stabilized, she said, and riskier assets have been rebounding.

“It feels very different from last year,” she said.

Many investors who moved to the sidelines in the debacle of 2008 have begun to return to the stock market. “Investors don’t like to be left behind in any rally,” said Henry Kaufman, the veteran Wall Street economist. “The juices are beginning to work, and that’s a good thing.”

Wall Street Journal

* JUNE 8, 2009

Land Mines Pockmark Road to Recovery

By MARK GONGLOFF

The stock market has erased almost all its losses for the year, yields on long-term government debt have returned to something like normal, and commodity prices have been surging — all evidence that the worst of the economic crisis may have passed.

But the road to recovery is far from smooth, or even assured. As investors ponder their next moves in this unusually unpredictable cycle, they are confronted with a confounding array of potential risks.

Last Friday, they got a taste. The government’s announcement of the lowest job-loss numbers since September didn’t much faze the stock market. But the market for U.S. Treasury debt had its worst day in nine months, driven by worries about inflation and higher interest rates.

In today’s jittery markets, good news on one front can have surprisingly bad effects elsewhere. At stake is the fragile confidence that’s been restored in the financial system.

A jump in economic growth, for example, could send commodity prices sharply higher. On Friday, oil briefly traded above $70 a barrel, due partly to economic optimism. Worries about inflation would cause interest rates to rise, hurting the housing market. Higher commodity prices could also be a drag on economic recovery, pushing job losses higher and leading to more mortgage defaults.

Many strategists and economists hold a relatively hopeful view: that a wave of government stimulus will hit the economy in time to unleash pent-up consumer and business demand, without stoking too much inflation. Such an outcome — a classic “V-shaped” recovery marked by a quick bottoming out and a lasting rebound — would enable stocks and other assets to keep rising in the second half of the year.

But the risks to that orderly scenario are high. It is possible that government stimulus could make the economy run too hot, fueling inflation that would force the government to slam the brakes on growth, creating a double-dip, or a “W-shaped,” recovery. The spike in yields on Treasurys on Friday was driven by the view that the Federal Reserve would need to raise interest rates sooner than expected, possibly slowing the economy too fast, too soon.

It’s also possible that the government stimulus will be ineffective at a time when households are staggering under the weight of debt and the loss of trillions of dollars in net worth. In that case, a sluggish recovery would be more likely. That could prevent inflation but make unemployment worse, in turn leading more people to fall behind on their mortgages, hurting the housing market and causing a new round of losses at banks.

Beware of geeks bearing grifts (sorry I cannot get over that one — cracks me up every time…)

Bank Profits From Accounting Rules Masking Looming Loan Losses
By Yalman Onaran

June 5 (Bloomberg) — Big banks in the U.S. say they’re on the mend. The five largest were profitable in the first quarter, rebounding from record losses for the industry in the fourth quarter. Share prices have jumped, with the KBW Bank Index doubling since March 6.

Treasury Secretary Timothy Geithner, after “stress testing” 19 banks on their ability to withstand a worsening economy, declared in early May that Americans can be confident in the banks’ stability and resilience. Wells Fargo & Co. and Morgan Stanley were among banks raising $43 billion in new capital since then through share sales.

“With our capital and assets, stressed as they have been, we can go back to focusing all our attention on managing our business and restoring value,” Citigroup Inc. Chief Executive Officer Vikram Pandit said after Geithner’s examinations were completed.

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.